SASRA: Clarion Call for the Merger of Small Saccos to Maintain Stability

UPDATE

SASRA: Clarion Call for the Merger of Small Saccos to Maintain Stability

By June Njoroge

The Sacco Societies Regulatory Authority (SASRA), has issued a clarion call to small Savings and Credit Co-operative Societies (SACCOS), to merge, in order to ensure they remain competitive, efficient and stable, whilst lowering operational costs.

As smaller Saccos tackle the uphill struggle, to mobilize deposits, the giant Saccos continue to deepen the control of deposits, which is the chief lending source, to members, with the top 20, already controlling more than half of the total deposits.

SASRA, states that the 20 DT Saccos, controlled a cumulative total deposits of Kshs 224.75 billion in 2019, which accounted for 59.08%, which is over half of the total deposits, which stand at Kshs 380.44 billion. An analysis indicates that, the bulk of the deposits are concentrated in the few DT-Saccos, with a deposit size in excess of Kshs 5 billion.

This coming after the Regulator, revoked licenses of several Saccos and put some on restricted operations, due to liquidity constraints. Since 2015, SASRA has revoked licenses of 14 DT Saccos, on account of failing to maintain the required levels of core capital.

In 2019,12 Saccos, were given license renewals, but with conditions attached, because they were in breach of some ratios. The Regulator, warns that as the market share of small Saccos, continues to come under pressure from large Saccos, they are at risk of folding up, making it a Hobson’s choice to merge and consolidate.

“A time has thus come, for the Sacco subsector, to start policy conversations and dialogues, on voluntary consolidation and amalgamations, of the many small DT-Saccos, in order for them to remain competitive and benefit from associated comparative advantages,” noted the Regulator.

According to their data, in 2012, there were a total of 215 Saccos, as opposed to the current 172 licensed DT-Saccos, which means that 43 Saccos, have dropped out in a span of 8 years.

In reiteration, the Central Bank of Kenya, has been open to the mergers and acquisitions, stating that they are crucial, for bringing stability in the sector. A total of 99 DT-Saccos, whose total deposits were below the Sh1 billion threshold, controlled a paltry 8.4%, of the total deposits within the system.

Large Deposit-Taking Saccos (DT-Saccos), have been urged to absorb these smaller entities, in a mutually beneficial venture, whereby, the large Saccos increases membership and consequently stability, whilst the smaller Saccos, will be saved from imminent insolvency, should the consolidation in the Co-operative movement come to pass.

Similarly, this has been witnessed in the banking sector, whereby, small banks have been bought out by large banks; where over 70% of deposits, lay in the hands of the top eight, out of the 40 entities. The recent case scenario, being the acquisition of the Jamii Bora Bank, which was renamed Kingdom Bank, after full acquisition by the Co-operative Bank.

“In the absence of such consolidation and amalgamation initiatives, a time will come in the medium to long term, when the market share of these small DT-Saccos, will be wiped out, thereby, rendering them financially unviable,” warns the Regulator. The stipulated regulations by SASRA, require among other things, that all DT Saccos, maintain at all times, the prescribed minimum core capital, of not less than Kshs 10 million.

In addition, the DT Saccos, are also required to maintain a minimum of capital adequacy ratios, of core capital to total assets of not less than 10%; core

SASRA CEO, Mr. John Mwaka.

capital to total deposits at 8% and institutional capital, to total assets at 8% respectively.

This a move towards strategic growth in the movement, which is meant to also shield members, in the cases where a Sacco license in revoked, leading to its consequent liquidation, whereby, it becomes a long and tedious process, for members in the recovery of their savings. Deposits are very crucial and account for over 90%, of funding for loans and other credit facilities, issued by DT-Saccos.

Consequently, without adequate deposit mobilization, their existence is compromised, because the Sacco business model, thrives on allowing members, to borrow up to three times, their savings.

This move, will also help seal poor corporate governance loopholes and boost the confidence of members, from small Saccos, who would have otherwise, been thrust in a precarious position, in the case of the aforementioned, license revocation and consequent liquidation, or insolvency.